Focus: StrongA “health and wellness firm” says Nick Dean, CEO. “Our focus is on product innovation, building great brands and finding distribution partners domestically and internationally.” Emblem engages in production and distribution of medical and recreational cannabis and derivatives (edibles, concentrates). Oils are now 1/3 of sales. It is also involved in patient education, and cannabis R&D. The company is not trying to be the biggest producer.

Markets: NeutralPrimary: Initially Alberta in 2018, where it has a supply agreement. Then all of Canada.
Secondary: Germany. It has a JV with Acnos, a German pharma wholesaler and will begin exporting in 2019.

Subsidiaries, Interests: Neutral but getting StrongMajority Subsidiaries:
– 100% of Emblem Cannabis Corporation, a licensed producer in Canada.
-100% of GrowWise Health Limited, a leading cannabis education firm
– On July 26, 2018, it signed a LOI to purchase 100% of Natura Naturals for roughly US$58 million. Natura management has 40 years of greenhouse experience. This follows its buying of 5-7% of Natura. The deal is expected to close in Q3 2018. Natura is a licensed cannabis grower with 660,000 sf of greenhouse.
Minority interests:
-Fire and Flower: an Alberta-based firm building dispensaries and brands.
Agreements:
Emblem has signed a three-year supply agreement with Natura. Natura will supply Emblem with up to 3,000 kg of dried cannabis flower per year at preferred wholesale pricing. Deliveries to Emblem will begin in October, 2018. Emblem expects to receive 750kg in 2018.

Operations:Cultivation: Strong– Current production: 2,250 kgs in 2018
– Future production: 70,000 kgs/year. Emblem just bought (late July 2018) Natura Naturals, which is building a 660,000 sf greenhouse. Phase One, 155,000 sf will begin producing at a pace of 15,000 kgs per year in August 2018. Phase Two, comprising the rest of the facility, 507,000 sf, will be ready to begin producing an additional 55,000 kgs in mid 2019.
Distribution: Weak to Neutral– Direct sales: Yes, it sells online. It had 3,600 registered patients on May 31, 2018
– Store networks: Signed deal to supply Shoppers Drug Market (when legal, as do other LPs). It has a partnership with Fire and Flower, a growing dispensary chain.

Integration/Diversification: NeutralVertically integrated: Yes, to a degree. It produces and distributes, though its distribution is not yet big.
Horizontally diversified: Not too much.

Financings:StrongIn Q1 2018, it completed US$41 million financing and its increased cash balance to US$64 million as of March 31, 2018. It spent all this on acquisitions recently

Risks:Because the cannabis industry is very new and immature, all firms are risky. Emblem is not as developed as some other cultivators, and is not yet producing much revenue, so it presents extra risks.

Recommendation: Strong

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Risk of Prosecution for Marijuana-Related Companies. If you are considering investing in a company that is connected to the marijuana industry, be aware that marijuana-related companies may be at risk of federal, and perhaps state, criminal prosecution. The Department of Treasury recently issued guidance noting: “[T]he Controlled Substances Act (“CSA”) makes it illegal under federal law to manufacture, distribute, or dispense marijuana. Many states impose and enforce similar prohibitions. Notwithstanding the federal ban, as of the date of this guidance, 20 states and the District of Columbia have legalized certain marijuana-related activity.”